How the Shift to Digital Has Disrupted Financial Planning in 2021 and Beyond

What You Need to Know

  • Digitalization of financial services has moved faster to democratize market access than the financial planning business.
  • Despite technology, advisors still utilize the same marketing and service infrastructure that only reach a small percentage of the wealthy.
  • Easy access to markets means the need for advisors to help guide this group with investing ideas and caution.

It’s hard to overstate how much the digitization of financial services has revolutionized the financial life of the average American. Your neighbor has never been able to invest so affordably, had access to as many choices nor had the ability to research investments so thoroughly.

Unfortunately, while the financial services system has adapted to give investors access to ways to invest their money, many Americans still don’t know where to find reliable financial advice. This is the next hurdle that financial technology must address.

Reducing the friction, or pain points, is the key. Before the internet, discount brokerage investors had to place a call and pay a significant fee to buy or sell stocks. Early online brokerages offered an alternative, but still had clunky user interfaces and high fees, not to mention account minimums that required investors to save a pile of cash before they could deploy it.

In 2015, Robinhood took a giant leap forward by not only cutting fees and allowing anyone to invest with no account minimums, but by adopting design cues from social media apps like Twitter and Facebook to “nudge” people to invest.

Intense colors, algorithm-based news feeds and fractional shares all encourage investors to take action, but they also make investing feel like less of a chore and more of a choice. This is the real effect of gamification, fractional shares and low fees.

Of course, gamification left unchecked, especially when paired with margin and leverage, is risky and should be addressed. However, the most resonant criticism of the financial services industry is lack of access. Account minimums and high fees in brokerage accounts keep smaller investors sidelined.

There are clear parallels between the shift in access to brokerage services and the average American’s access to quality financial advice. While retail stock ownership may trace its history back to the advent of the public company, financial planning is in its relative infancy. Planners today trace their roots to a meeting in Chicago in 1969.

Financial planning has historically been expensive because it’s a labor-intensive practice that requires substantial professional insight and data-backed projections.

As Richard Averitt, the CEO of Raymond James, told ThinkAdvisor, “When I started doing financial planning, we were sitting with calculators and it could take months to do a financial plan. It was an arduous, lengthy process, fraught with opportunity for human error, and very difficult to update.”

Beyond Servicing

Because it was difficult and expensive to produce financial plans, it made sense for financial advisors to focus on primarily serving the wealthy and ultra-wealthy. Middle- and lower-income Americans have struggled to find the same quality financial planning services because people that fall into a lower asset class threshold “have been historically difficult to serve in a cost-effective manner.”

Creating and servicing a financial plan isn’t the only cost driver for advisors, who often spend as much time looking for their next client as they do serving current ones.

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